<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
___________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended April 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File No. 0-25668
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 11-319748
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of organization) Identification Number)
3070 WEST POST ROAD
LAS VEGAS, NEVADA 89118
(Address of Principal Executive Offices)
(702) 896-8900
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at May 31, 1995
----- ---------------------------
Class A Common Stock, $.01 par value 3,220,000 shares
Class B Common Stock, $.01 par value 4,000,000 shares
Transitional Small Business Disclosure Format
Yes X No
--- ---
Page 1 of 13
Exhibit Index on Page 13
<PAGE>
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
(a development stage company)
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as at April 30, 1996 and 1995
(unaudited)................................................... 3
Statement of Operations for the Three and Six
Months ended April 30, 1996 and 1995 (unaudited).............. 4
Statement of Cash Flows for the Six Months
ended April 30, 1996 and 1995 (unaudited)..................... 5
Notes to Financial Statements...................................... 6
Item 2. Results of Operations.................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 11
Item 6. Exhibits and Reports on Form 8-K......................... 11
SIGNATURES......................................................... 12
</TABLE>
Page 2 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
April 30, April 30,
1996 1995
---------- ----------
<S> <C> <C>
ASSET
-----
Current Assets:
Cash and cash equivalents 730,658 10,572,482
Accounts receivable 1,640,908 -
Inventory 2,285,163 874,188
Prepaid expenses and other current assets 445,767 200,555
---------- ----------
Total current assets 5,102,496 11,647,225
Machinery and equipment net of accumulated
depreciation of $240,411 and $14,485 1,616,684 220,952
Deferred costs of securities registration 206,589 -
Deposits 29,108 75,003
---------- ----------
TOTAL 6,954,877 11,943,180
========== ==========
LIABILITIES
-----------
Current Liabilities:
Accounts payable 2,227,011 543,685
Accrued expenses 335,260 70,408
---------- ----------
Total current liabilities 2,562,271 614,093
Commitments/Contingencies (Note B)
STOCKHOLDERS' EQUITY (NOTE A)
- -----------------------------
Preferred stock, par value $0.01 per share,
5,000,000 shares authorized, none issued - -
Class B common stock, six votes per share, par
value $0.01 per share, 4,000,000 shares
authorized, issued and outstanding including
3,200,000 shares placed in escrow 40,000 40,000
Class A common stock, one vote per share, par
value $0.01 per share, 40,000,000 shares
authorized, 3,226,257 issued 32,263 32,200
Capital in excess of par value 14,283,985 14,230,432
Accumulated Deficit (9,963,642) 2,973,545
---------- ----------
Total stockholders' equity 4,392,606 11,329,087
---------- ----------
TOTAL 6,954,877 11,943,180
========== ==========
</TABLE>
Page 3 of 13
<PAGE>
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Three Months
Ended April 30, Ended April 30,
-------------------------- --------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Sales 1,613,376 - 1,613,376 -
Video service fees 55,029 - 28,847 -
---------- ---------- ---------- ----------
Total 1,668,405 - 1,642,223 -
COSTS AND EXPENSES
Cost of goods sold 1,738,003 - 1,687,026 -
Research and development expenses 1,662,001 999,344 910,571 523,616
Marketing and administrative expenses 2,573,618 808,528 1,510,140 462,032
Interest and amortization of debt issue costs - 851,218 - 587,731
---------- ---------- ---------- ----------
Total 5,973,622 2,659,090 4,107,737 1,573,379
OTHER INCOME
Interest income 75,136 87,825 24,148 76,005
---------- ---------- ---------- ----------
NET LOSS 4,230,081 2,571,265 2,441,366 1,497,374
Net loss per share of common stock $ (1.05) $ (1.56) $ (0.60) $ (0.59)
========== ========== ========== ==========
Weighted average shares outstanding 4,040,548 1,649,282 4,040,699 2,527,191
========== ========== ========== ==========
</TABLE>
Page 4 of 13
<PAGE>
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months
Ended April 30,
-------------------------------
1996 1995
----------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss (4,230,081) (2,571,265)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation 17,227 13,785
Amortization of Debt Discount and Deferred
Financing Costs - 738,418
Changes in operating assets and liabilities:
Increase in accounts receivable (1,605,995) -
Increase in inventory (238,939) (874,188)
Decrease in deferred costs 126,884 -
Increase in prepaid expenses (53,586) (183,063)
Increase in accounts payable 1,641,314 543,684
Increase/(decrease) in accrued expenses 175,224 (43,621)
---------- -----------
Net cash used in operating (4,014,952) (2,376,250)
Cash flows from investing activities:
Capital expenditure (149,739) (224,744)
Deposits 11,740 (60,105)
---------- -----------
Net cash used in investing activities (137,999) (284,849)
Cash flows from financing activities:
Proceeds from issuance of common stock 53,616 13,827,384
Proceeds from bridge notes - (2,025,000)
Registration costs (206,589) -
---------- -----------
Net cash provided by financing activities (152,973) 11,802,384
Net (decrease)/increase in cash (4,305,924) 9,141,258
Cash - beginning of period 5,036,582 1,421,197
---------- -----------
Cash - end of period 730,658 10,572,482
========== ===========
</TABLE>
Page 5 of 13
<PAGE>
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The financial statements of Interactive Flight Technologies, Inc. included
herein have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for Form 10-QSB and reflect all adjustments
(consisting of normal recurring accruals) and disclosures which, in the opinion
of management, are necessary for a fair statement of results for the interim
period presented. It is suggested that these financial statement be read in
conjunction with the financial statements and notes thereto for the fiscal year
ended October 31, 1995, included in the Company's Annual Report on Form 10-KSB
and amendment No. 1 to the Annual Report on Form 10-KSB/A for the fiscal year
ended October 31, 1995.
The results of operations for the six months ended April 30, 1996 are not
necessarily indicative of the results to be expected for the entire fiscal year.
NOTE A - CLASS A WARRANT EXERCISE OFFER:
The Company filed a registration statement with the SEC with respect to an
Exercise Offer on April 12, 1996 pursuant to which the Company offered the
holders of the Company's Class A Redeemable Stock Purchase Warrants who exercise
their Class A Warrants pursuant to the Exercise Offer, (i) to issue an extra 1/2
Class B Redeemable Stock Purchase Warrant (in addition to the securities
currently underlying the Class A Warrants) for each Class A Warrant so exercised
and (ii) to reduce the exercise price of Class A Warrants to $5.75 per share
(from $7.00 per share) for each Class A Warrant exercised.
The Company completed its exercise offer on May 17, 1996 and received net
proceeds of approximately $25,205,000 net of the underwriter's commission's and
expenses of approximately $1,600,000.
NOTE B - COMMITMENTS/CONTINGENCIES
The Company is a defendant in an action entitled Andrew Maxon v.
Interactive Flight Technologies, Inc. brought in the United States District
Court for the Eastern District of New York. The action was filed in February
1995 by an individual who performed certain services for the Company and with
whom the Company had been engaged in negotiations to become an officer of the
Company. The plaintiff claims breach of an alleged contract and wrongful
discharge and is seeking damages of approximately $250,000 plus options to
purchase 25,000 shares of the Company's stock. The Company believes that the
claims are without merit and intends to defend them vigorously.
Page 6 of 13
<PAGE>
ITEM 2: RESULTS OF OPERATIONS
GENERAL
Interactive Flight Technologies, Inc. (the "Company") is engaged in the
development, manufacture, installation and operation of a computer-based network
inflight entertainment network ("The Entertainment Network"), which provides
aircraft passengers the opportunity to view movies, to purchase goods and
services, to play computer games and, in certain cases where permitted by
applicable law, to gamble through a high-resolution video touch screen.
The Company entered into its first airline contract (the "Alitalia
Contract") with Alitalia Airlines S.p.S. ("Alitalia") in 1995, and Alitalia
accepted the contract following early completion of a trial period on February
1, 1996. The Alitalia Contract provides for the delivery of The Entertainment
Network for installation on five MD-11 aircraft and the operation of The
Entertainment Network on those aircraft over a period of approximately eight
years. However, the Alitalia Contract does not presently provide for, and is not
expected to provide for, passenger use of The Entertainment Network gambling
features. In February 1996, an agreement was also signed with Debonair (the
"Debonair Contract") to install and operate The Entertainment Network (including
video casino style gambling) on Debonair's entire fleet, which consists of six
RJ-146 aircraft. In April 1996, nonbinding letters of intent were signed with
Swissair and Oasis International Airlines S.A. ("Oasis") to install The
Entertainment Network (including video casino style gambling) on five 747's and
sixteen MD-11 aircraft for Swissair and on two Airbus A-310 aircraft for Oasis.
There can be no assurance that the Company will successfully negotiate
definitive agreements with either Swissair or Oasis.
During the quarter ended April 30, 1996, the Company generated its first
revenues, totaling $1,613,376, arising out of the acceptance of the Alitalia
Contract on February 1, 1996 and the subsequent delivery of The Entertainment
Network for installation on two additional Alitalia aircraft during the quarter.
The Company incurred a net loss of $2,441,366 during the quarter ended
April 30, 1996, an increase of $943,992 (or 63%) from a net loss of $1,497,374
for the quarter ended April 30, 1995. The Company incurred a net loss of
$4,230,081 during the six months ended April 30, 1996, an increase of $1,658,816
(or 65%) from a net loss of $2,571,265 for the six months ended April 30,
1995. The increased losses were due to increasing of staff and building of
facilities to fulfill the Company's requirements under the Alitalia Contract,
the Debonair Contract and other contracts under negotiation, and also were due
to increased professional, administrative fees and research and development
expenses. The Company expects to continue to incur losses for the foreseeable
future. At April 30, 1996 the Company's accumulated deficit was $9,963,642.
Research and development expenses during the quarter ended April 30, 1996
were $910,571, an increase of $386,955 (or 74%) from $523,616 during the
quarter ended April 30, 1995. Research and development expenses during the six
months ended April 30, 1996 were $1,662,001, an increase of $662,657 (or 66%)
from $999,344 during the six months ended April 30, 1995. These increases
reflect expenses incurred in the continuing development of The Entertainment
Network. The Company anticipates that research and development expenses will
continue at their present levels or will increase during the remainder of fiscal
1996.
Page 7 of 13
<PAGE>
Marketing and administrative expenses during the quarter ended April 30,
1996 were $1,510,140, an increase of $1,048,108 (or 227%) from $462,032 for the
quarter ended April 30, 1995. Marketing and administrative expenses during the
six months ended April 30, 1996 were $2,573,618, an increase of $1,765,091 or
(218%) from $808,527 for the six months ended April 30, 1995. These increases
were primarily due to substantially increased marketing activities (such as
attendance at trade shows and travel relating to sales to airlines) and
increases in administrative staff and related expenses.
Costs of goods sold were $1,738,003 (108% of sales) and $1,687,026 (105%
of sales), respectively, for the six month and three month periods ended April
30, 1996. Although the Company hopes to reduce the cost of goods sold as a
percentage of sales for future periods, these percentages are likely to remain
high over the next few quarters since the Company's business plan is to derive a
substantial portion of its revenues from future passenger use of The
Entertainment Network.
The Company completed a $3,100,000 bridge financing (the "Bridge
Financing") in October and November 1994. Under the Bridge Financing, the
Company paid non-recurring interest and debt charges of $587,731 and $851,218
for the quarter and six months ended April 30 1995, respectively (which includes
$112,800 for accrued interest through March 14, 1995, non-cash charges of
$432,313 for amortization of deferred financing costs and $306,105 for
amortization of the value of certain related Bridge Warrants). The Company
repaid the Bridge Financing indebtedness with a portion of the proceeds from its
initial public offering in February 1995, and consequently has incurred no
interest or debt charges thereunder in fiscal 1996.
The Company currently intends to relocate its principal executive offices
and its design and assembly facilities to Phoenix, Arizona. The Company is
considering various proposed sites and expects to execute a lease for office and
industrial space during the current quarter.
Effective May 10, 1996, Donald H. Goldman resigned from his positions of
President and director of the Company, which he had held since the Company's
inception in February 1994. Mr. Goldman resigned voluntarily to pursue other
interests. Further, one of Mr. Goldman's main responsibilities was in the area
of entertainment programming. As the Company's operations have expanded, it has
become clear that the entertainment aspect of the Company's business will be
based in the western United States, and Mr. Goldman did not wish to relocate at
this time. The Company is actively conducting a search for a successor to Mr.
Goldman.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1996 the Company had working capital of approximately $2.54
Million and has incurred losses since that date. The Company increased its
working capital in May 1996 from the proceeds of its Class A Warrant Exercise
Offer, its third financing, from which the Company received proceeds (net of
expenses of $1.6 Million) of approximately $25.2 Million. The Company expects
that losses will continue for the foreseeable future and, as a result, unless
funds are received from additional financing, working capital is expected again
to decrease following the initial increase attributable to receipt of proceeds
from the aforementioned Exercise Offer. The Company's principal sources of funds
to date have been through debt and equity financing.
Page 8 of 13
<PAGE>
At May 30, 1996, the Company' only material capital commitments were
purchase orders of approximately $7.8 Million relating primarily to inventory
purchases.
The Company's revenues have been generated, and are anticipated to be
generated in the future, from sales, installation and servicing of The
Entertainment Network aboard commercial and charter aircraft. The contracts the
Company has executed and is currently negotiating generally provide for the
Company to install the Entertainment Network on an aircraft and to be paid for
the equipment and for its installation and maintenance out of revenue generated
by passenger use of the installed network on the aircraft. As a result, the
Company must expend significant capital amounts for the assembly, installation
and maintenance of The Entertainment Network on each aircraft, but revenue as
payment for the system will be received, if at all, only as a result of the use
of the system over a potentially significant period of time. Moreover, the
Company may also enter into commitments to purchase equipment necessary for
additional installations, even in the absence of a purchase commitment from an
airline, if such action is determined to be necessary or desirable to pursue
business opportunities. The Company also expects its cash requirements to
increase in future periods due to higher expenses associated with increased
sales and marketing activities and financing of inventory purchases,
installations and accounts receivable.
As a consequence, the Company will need additional financing to perform
under its existing contracts (i.e., the Alitalia Contract and the Debonair
Contract) in addition to any future contracts that it may enter into, including
those it is currently negotiating. Although the Company has been in discussions
with a number of external sources of capital to raise portions of the funds
needed, there can be no assurances that such funds will be available in the near
future when it will be needed for the contracts involved. Without additional
funding from external capital sources or from exercise of the Company's
outstanding warrants, the Company will not have sufficient cash to complete all
of its existing and pending contracts. Moreover, although the Company's model of
being paid out of revenues from the operation of The Entertainment Network
provides it with substantial potential upside if such revenues are high, it also
subjects the Company to substantial risk if passengers fail to make sufficient
use of The Entertainment Network.
The Company intends to use a substantial portion of its cash resources to
fund its plan of operations, which includes the following elements, for
approximately the next 12 months:
. Completing the development of The Entertainment Network, including
reconfiguring hardware components to meet the requirements of the FAA
and airlines with which the Company has contracts, and developing
certain software interfaces.
. Performing under the Alitalia Contract, including manufacturing,
assembling and delivering the balance of The Entertainment Network for
the remaining two aircraft.
. Performing under the Debonair Contract, including manufacturing,
assembling and delivering the balance of The Entertainment Network for
the six RJ-146 aircraft.
Page 9 of 13
<PAGE>
. Finalizing contracts with Swissair and Oasis to install The
Entertainment Network on Swissair's sixteen MD-11 and five B-747
aircraft and on Oasis' two Airbus A-310 aircraft.
. Marketing The Entertainment Network to airlines, primarily to
international carriers.
. Updating and enhancing the programming software initially included in
The Entertainment Network and developing or acquiring from third
parties new programming software. Because the technology incorporated
in The Entertainment Network is rapidly developing, the Company will
also continue to develop hardware and software enhancements to meet
market and customer demand.
The foregoing represents the Company's current plan of operation for
the next 12 months. Future events, including changes in technological, economic,
regulatory or competitive conditions or the results of the Company's sales and
marketing activities, may require changes in the Company's plans.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the matters
discussed in this Quarterly Report on Form 10-QSB are forward-looking statements
that are subject to certain risks and uncertainties that could cause actual
results to differ materially from those set forth in such forward-looking
statements. Such risks and uncertainties include, without limitation, the
failure of passenger use of The Entertainment Network to generate sufficient
revenues, the failure to execute definitive agreements with Swissair and/or
Oasis on favorable terms or at all, the failure of the Company to receive
sufficient financing to perform its obligations under its existing and
contemplated agreements, the impact of competition and downward pricing
pressures, the effect of changing economic conditions, risks in technology
development, the risks involved in currency fluctuations, and the other risks
and uncertainties detailed from Registration Statement on Form SB-2 dated March
7, 1995, the Company's Annual Report on Form 10-KSB and amendment No. 1 to the
Annual Report on Form 10-KSB/A for the fiscal year ended October 31, 1995.
Page 10 of 13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Reference is made to the information set forth under "Legal
Proceedings" in the Company's Annual Report on Form 10-KSB and amendment No. 1
to the Annual Report on Form 10-KSB/A for the fiscal year ended October 31,
1995.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.2* - Amended and Restated Certificate of
Incorporation of the Registrant
3.3* - Certificate of Amendment of Amended and
Restated Certificate of Incorporation of
Registrant
3.4* - By-laws of the Registrant
27 - Financial Data Schedules
___________________________
* Incorporated by Reference from the Registrant's Registration Statement on
Form SB-2, Registration No. 33-86928.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the
second quarter of the fiscal year ending October 31, 1996.
Page 11 of 13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 14, 1996 INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By: /s/Michail Itkis
----------------------------
Michail Itkis
Chief Executive Officer
By: /s/ Robert J. Aten
----------------------------
Robert J. Aten
Chief Financial Officer
Page 12 of 13
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
3.2 Amended and Restated Certificate of Incorporation of *
the Registrant
3.3 Certificate of Amendment of Amended and Restated *
Certificate of Incorporation of Registrant
3.4 By-laws of the Registrant *
27 Financial Data Schedule 14
</TABLE>
___________________________
* Incorporated by Reference from the Registrant's Registration Statement on
Form SB-2, Registration No. 33-86928.
Page 13 of 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> OCT-31-1996 OCT-31-1996
<PERIOD-START> NOV-1-1996 FEB-1-1996
<PERIOD-END> APR-30-1996 APR-30-1996
<CASH> 730,658 10,572,482
<SECURITIES> 0 0
<RECEIVABLES> 1,640,908 0
<ALLOWANCES> 0 0
<INVENTORY> 2,285,163 874,188
<CURRENT-ASSETS> 5,102,496 11,647,225
<PP&E> 1,857,095 235,437
<DEPRECIATION> 240,411 14,485
<TOTAL-ASSETS> 6,954,877 11,943,180
<CURRENT-LIABILITIES> 2,562,271 614,093
<BONDS> 0 0
0 0
0 0
<COMMON> 72,263 72,200
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 6,954,877 11,943,180
<SALES> 1,613,376 1,613,376
<TOTAL-REVENUES> 1,668,405 1,642,223
<CGS> 1,738,003 1,687,026
<TOTAL-COSTS> 5,973,622 4,107,737
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (4,230,081) (2,441,366)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,230,081) (2,441,366)
<EPS-PRIMARY> (1.05) (0.60)
<EPS-DILUTED> (1.05) (0.60)
</TABLE>
